Cebu–(PHStocks)–Aboitiz Equity Ventures Inc. (PSE: AEV) ended the fourth quarter of 2011 with a consolidated net income of PhP5.1 billion, recording an increase of 2% year-on-year (YoY). Out of the total earnings contributions from the Company’s strategic business units (SBU), Power accounted for 79%. Income share of the Banking and Food SBUs were at 15% and 6%, respectively.
For the three-month period in review, the Company recorded one-off losses of PhP157 million, vis-à-vis last year’s PhP379 million. The revaluation of consolidated dollar-denominated loans and placements resulted to a non-recurring loss of PhP94 million for the quarter. In addition, an associate company of its Power SBU incurred a PhP26 million gain as costs relating to its fuel importation were recovered during the period. The pretermination of loans by AEV and its Power SBU resulted to one-time fees of PhP89 million. Adjusting for all these non-recurring items, AEV closed the quarter with a 2% YoY decline in core net income, from PhP5.4 billion to PhP5.3 billion.
On a full year basis, AEV ended 2011 with a consolidated net income of PhP21.2 billion, recording a decline of 3% YoY. This translates to P3.84 in earnings per share. Power remained to account for the lion’s share at 78%, which was followed by the Banking and Food SBUs with income contributions of 16% and 6%, respectively.
For the year 2011, the Company incurred a non-recurring gain of PhP366 million (versus last year’s PhP30 million), which is comprised of the following: (1) a net loss of PhP123 million due to the revaluation of consolidated dollar-denominated loans and placements; (2) a PhP266 million gain given a power subsidiary’s revenue adjustment that resulted from a favorable ruling by the industry regulator involving its ancillary services tariff structure; (3) a PhP163 million gain as a power associate company recovered costs relating to its fuel importation; (4) a PhP149 million gain consequent to a reversal of an accrued expense relating to a power subsidiary’s IPPA contract; and (5) an PhP89 million one-time fee relating to loan preterminations. Accounting for these one-off’s, AEV’s core earnings for 2011 was at PhP20.8 billion, lower by 5% YoY.
Strategic Business Units – Full Year 2011 Performance
Aboitiz Power Corp. (AboitizPower) (PSE: AP) ended the year in review with an income contribution of PhP16.5 billion, vis-a-vis last year’s PhP19.1 billion. When adjusted for nonrecurring items, the Power SBU recorded a 14% YoY reduction in its earnings share, from PhP18.7 billion to PhP16.1 billion.
In 2011, the power generation business contributed earnings of PhP15.6 billion, recording a 16% YoY drop. The decline in the group’s bottomline performance was due to the lower average selling price and net generation recorded for the period.
As a group, AboitizPower’s generation business logged a 7% drop in average selling prices, given the softening of the spot market prices at the Wholesale Electricity Spot Market (WESM). Both demand and supply conditions that prevailed during the year were responsible for the recorded 41% YoY decline in the average price of electricity in the WESM’s Luzon spot market. Demand for electricity was relatively flat versus last year. Supply, in the meantime, showed marked improvements as average outage levels for Luzon-based powerplants declined vis-à-vis 2010 levels. The adverse impact on earnings, however, was tempered by AboitizPower’s strategic move of lowering its exposure to the spot market with the group’s increased contracted capacity. AboitizPower’s net generation for the year registered a 3% YoY decline, from 9,762GWh to 9,422GWh. The drop in energy sales was mainly accounted for by the reduced spot market transactions brought about by the low prices that prevailed in the WESM.
The YoY increase in fuel costs resulted to a margin squeeze for Therma Luzon Inc. (TLI), a wholly owned subsidiary of AboitizPower. Terms of its existing bilateral contracts do not allow TLI to cover for the increase in its fuel cost, which was mainly driven by the unfavorable global supply situation in 2011. Moreover, costs incurred by TLI relating to an unplanned shutdown in the last quarter of the year further weighed down TLI’s profit contribution in 2011.
The ancillary services provided by AboitizPower’s merchant hydro assets grew significantly over last year. With the elevated water levels vis-à-vis 2010, the capability of both Magat and Binga to offer ancillary services was significantly enhanced. The year saw a higher level of accepted capacities by the National Grid Corporation of the Philippines. The combined income contribution of these assets recorded an 84% YoY expansion for the year.
As of end-2011, AboitizPower’s attributable capacity was at 2,350MW, posting a 15% YoY increase. The expansion was due to the following: assumption of full ownership of and control over the 70-MW Bakun hydro run-of-river plant in May 2011, acquisition of the 242-MW Navotas power barges in May 2011, the full completion of the rehabilitation of the Ambuklao hydropower facility in September 2011, the completion of the 4-MW Irisan hydropower Greenfield project in September 2011, and the partial completion of the rehabilitation works at the Binga hydropower facility.
Improved volumes and margin expansions resulted to a 24% YoY increase in the power distribution group’s income contribution for the year 2011, from PhP1.5 billion to PhP1.8 billion. AboitizPower’s attributable electricity sales grew by 3% YoY, from 3,606GWh to 3,727GWh. Growth was mainly a result of the increased electricity sales to the industrial customer segment, which recorded a 6% YoY increase. The group’s gross margin for the period in review improved by 15% YoY to P1.44/kWh, which was partly due to the favorable effect of the implementation of the approved distribution tariffs (under the Performance Based Regulation scheme) of some of AboitizPower’s distribution utilities. Moreover, Davao Light & Power Company recorded a reduction in operating expenses as operation of its back-up power plant was not required during the year in review.
The Banking SBU’s income contribution for the year 2011 recorded a 31% YoY improvement, from PhP2.6 billion to PhP3.4 billion.
UnionBank’s total interest income in 2011 was flat at PhP11.8 billion as the expansion of average earning assets offset the decline in average asset yields. Interest earnings on loans and other receivables recorded an 8% YoY increase. Said growth, however, was countered by a decline in the bank’s interest income on trading and investment securities, as the lower average yields neutralized the expansion in UnionBank’s securities portfolio. Higher impairment losses booked for the year in review resulted to a 17% YoY drop in the bank’s net interest income after impairment losses.
Non-interest income for the period improved to PhP9.6 billion, up by 56% from last year’s PhP6.1 billion, as the bank continued to take profit in its securities position. Higher premium revenues, likewise, contributed to the significant increase in non-interest income resulting from higher sales of its subsidiary’s pre-need plans. The corresponding trust fund contributions on these plans, and higher salaries and employee benefits in support of the bank’s business expansion, drove operating expenses to increase by 26% YoY.
UnionBank’s asset base stood at PhP270.2 billion as of year-end, with a deposit base of PhP204.2 billion and a loan book of PhP105.2 billion. The bank’s capital adequacy ratio strengthened to 18.2% as of end-2011 from last year’s 17%, notwithstanding the exercise of the call option on PhP1.3 billion of unsecured subordinated debt in September 2011.
AEV’s non-listed thrift bank, City Savings Bank, Inc. (CitySavings), contributed earnings of PhP531 million during the year in review, up 69% YoY. The higher earnings contribution could be attributed to the increased ownership stake in CitySavings, coupled with the 7% YoY improvement in the bank’s bottomline performance. In 2011, CitySavings recorded a 29% YoY expansion in its net interest income. This was mainly brought on by a 33% YoY increase in its interest income on loans and service fees. This robust growth, however, was tempered by a 36% YoY rise in operating expenses that resulted from the implementation of the bank’s expansion program and its various initiatives during the year. CitySavings ended the year with a total loan book of PhP9.9 billion, up 52% YoY. Total resources as of year-end was close to PhP13 billion, recording a 44% YoY increase. The bank’s NPL ratio as of end-2011 was less than 1% while its NPL coverage ratio was at 195%. Total capital funds amounted to PhP1.8 billion with a capital adequacy ratio of 16.8%.
The 2011 income contribution from AEV’s Food SBU, Pilmico Foods Corp. (Pilmico), recorded a 19% YoY decline, from PhP1.5 billion to PhP1.2 billion. Topline expansion of 14% was due to volume increases recorded by the feeds and swine operating divisions, coupled with higher average selling prices (ASP) booked by the flour and feeds units. However, higher input costs weighed down the profitability of the flour and swine segments, as income contributions posted YoY declines of 36% and 75%, respectively. It was only the bottomline performance of the feeds unit that recorded a positive growth rate of 14% YoY, as higher ASP cushioned the rise in raw material costs.
For the year ending December 31, 2011, the Company’s consolidated assets amounted to PhP201.7 billion, up by 15% from year-end 2010 level. Cash and cash equivalents was at PhP29.5 billion, 13% higher than year-end 2010 level of PhP26.1 billion. Consolidated liabilities amounted to PhP106.4 billion, while Equity Attributable to Equity Holders of the Parent increased by 20% to PhP77.4 billion. Current ratio as of year-end 2011 was at 2.9x (versus year-end 2010’s 2.4x), while net debt-to-equity ratio was at 0.6x (versus year-end 2010’s 0.7x).